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Friday, 21 November 1941

Mr JOLLY (Lilley) .- I regret, that the Treasurer (Mr. Chifley) cannot see his way clear to refer this bill to a parliamentary committee in the same way- as the principal legislation was referred to a committee last year. A technical and involved measure of this kind cannot be effectively dealt with in general debate. We are forced to take a good .deal for granted as to the amount of revenue and as to those who will be called upon to contribute that revenue. It would have been very helpful to this House, if the Taxation Department had reported to Parliament on the results of the operations- of the principal act. This was an entirely new form of taxation, and the parliamentary committee which formulated the proposals in the first instance considered that the operation of the act should be subjected to a careful review prior to the introduction of the 1943-42 budget. Honorable members agreed at the time that the committee should bc asked to examine the measure again in the light of experience. Unfortunately, the committee has been given no opportunity to do this. The act contains a provision thai, the Commissioner of Taxation shall submit an. annual report on its operations-. ! know that he has not had time yet to prepare his annual report, but, in a matter of this kind, the House should have been furnished with a preliminary report. What business concern would effect any important change of policy without giving .serious attention to its effects ? The only indication of the effect of the tax that we have before us is the budget statement that, in the last financial year, £3,98.9,000 was derived from company taxation under this measure. Of this sum, £2,000,000, or more than one-half, was provided by the super tax of ls. in the £1 imposed under the Income Tax Act. I draw attention to the statement made by the Treasurer in his budget speech, that he would expect the tax, if it remained at the original rate, to produce not more than £1,000,000. I have made inquiries in an endeavour to ascertain the reason for this estimate, when the revenue from the same source last year was £1,9S9,000. I believe that the decrease would be due to the combined effect of the introduction of this tax and the increase of income tax rates generally. This effect should be taken into consideration.. The war-time company tax lias been much less productive than we were led to expect when the original bill was submitted to the House. We were then advised that the estimated revenue was approximately £5,000,000. It is true that, as the result of the recommendations of the committee which investigated the subject, the tax was not applied to private companies. Nevertheless, the actual revenue has been less than one-half of the original estimate. Any suggestion that the balance of the £5,000,000 would have been received if the tax had been applied to private companies would support my contention that the bill, as originally drafted, would have imposed an unfair burden upon the small companies.

I protest emphatically against the paucity of the data supplied to honorable members by the Government; it is not sufficient to enable us to deal satisfactorily with this important measure. I urge the Government to appoint a select committee to consider taxation measures, not only as they are introduced into the House, but also throughout the year, so that honorable members may obtain valuable information regarding their operation. Many honorable members are well qualified to assist the Parliament in this way. It is unfair to us that we should be obliged to give hasty consideration to measures of this kind, but it is more unfair to the taxpayers, who will be called upon to bear the increased burdens. In this bill we are called upon to reduce the rate of profit that is exempt from the war-time company tax from8 per cent. to 4 per cent., but we have no information regarding the probable effect of this proposal. I have made a brief examination of the a (fairs of some of the major companies, and from the information that I have gained I suggest that the Government will not obtain, by means of this tax, the amount of revenue that it has estimated.

Mr Conelan - Then what is the honorable gentleman complaining about?

Mr JOLLY -I am concerned because the small companies, not the larger companies, will have to bear a heavy burden as the result of this imposition. The honorable member is apparently satisfied to rush important measures like this through Parliament without giving proper consideration to their probable effects.

Mr.Conelan. - What has the honorable gentleman clone about the matter?

Mr JOLLY - It was at my suggestion that the committee was appointed last year to investigate the new war-time proposals. 1 am not concerned so much about the companies with millions of pounds of capital, which are capable of looking after their own interests, as about the smaller companies with only a few hundred thousand pounds of capital. I have in mind particularly the small companies which have not yet had time to build up reserves, and the companies which, in recent years, have suffered severe reverses. According to the proposals of this bill, a company with a capital of £200,000 will be entitled to earn a profit of £8,000 before becoming subject to war-time company tax. A company with a capital of £200,000, which has been in existence for some time and has been able to build up reserves of, say, £200,000, will be able to make £16,000 profit before the tax is applied. The Government's revenue and the national economy will suffer if we virtually ruin the small companies which have not been operating long enough to have accumulated sufficient reserves to enable them to meet this tax, and also to guard against future financial reverses. I refer particularly to the position of a company which has had to write down its capital owing to losses. A company with an original capital of £200,000, which has had to write off £100,000, will be allowed to make a profit of only 2 per cent. on the actual subscribed capital before it becomes subject to the war-time company tax. In estimating the capital of the company for the purpose of this measure, allowance should be made for capital written off owing to losses. An amendment which has beenmoved to the Income Tax Assessment Bill 1941 is intended to assure, in the case of distribution by a liquidator and the application of income tax to the profits arising from the liquidation, that liability for income tax shall not arise until the capital actually subscribed by shareholders has been replaced. The same principle should be applied in this measure.Companies which have had to write off a considerable amount of their capital are entitled to consideration of this sort. If no concession be granted to them, they will be placed in a very unfavorable position. I refer now to section 35 of the original act,which relates to the right of a company to deduct from the dividends of preference shareholders the amount of the war-time profits tax. The deduction is optional, and it places the directors of companies in a very embarrassing position. As I pointed out when I was dealing with the increased rates of income tax levied on companies, ordinary shareholders will be placed at a great disadvantage as compared with preference shareholders. The preference shareholders receive a set rate of dividend, and they have first claim upon the profits of the company. The company pays all of the heavy income tax for the preference shareholders, and distributes dividends to them before the ordinary shareholders receive anything. Very often, the preference shareholders dominate the policy of a company. The interests of the ordinary shareholders ought to be protected. In askingus to reduce the allowable margin of profit from8 per cent. to 4 per cent., the Government is asking us to take a. step in the dark. We have not sufficient information before us to allow us to decide the effect of this proposal. The Government, will be unwise if it allows taxation measures to be passed without making any attempt to investigate their effect. These measures, particularly those relating to income tax, were not of such great importance to the Commonwealth beforethe war as they are now. In peace-time, the Commonwealth levied about £12,000,000 annually in taxes. Since the outbreak of war, the Commonwealth has increased direct taxation by over 500 per cent. Therefore, it is the duty of this House to give more than passing consideration to taxation proposals. The Minister assisting the Treasurer (Mr. Lazzarini) appealed to us this (morning to pass this bill hastily through She House. I protest against this attitude, and against the lack of information available to us owing to the absence of a report from the Commissioner of Taxation on the operations of the wartime company tax to date.

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